November 28, 2014
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W. Warwick, Woonsocket on the brink of bankruptcy
Lookout

With Rhode Island about to once again face $100 million-plus deficits in the years ahead, two communities in Rhode Island are struggling with even greater gaps relative to the size of their own budgets: West Warwick and Woonsocket. Both are essentially broke with the long-term financial outlook precarious. Unfortunately, despite whatever they can do in the near-term to stave off bankruptcy, the state may have to step in and take control of them at some point, as it did in Central Falls.

West Warwick’s employee pension funds are underfunded to the tune of $115 million. The funds are only 20 percent funded, putting them in “critical status.” The town’s voters just approved a budget for the next fiscal year that town officials hope will buy some additional time as they negotiate concessions with the same unions whose pension fund, at this point, won’t be able to pay them in retirement. Voters accepted a property tax increase of almost 4 percent so that the added revenue can be deployed into the pension fund and to the school system. If the town can’t wring significant concessions out of its unions, the property tax increase won’t save the situation.

Woonsocket is in even worse shape. Its school system runs an annual deficit that requires an advance payment from the state, and its pension plans are woefully underfunded. Adding to its woes was the news in the national press about Woonsocket being a SNAP locale getting by on a first-of-the-month spending spree. People on welfare and other forms of public assistance are often broke by month’s end – sometimes well before – so retail spending dries up for weeks, only to return in a relatively brief splurge at the beginning of the month.

Desperate to raise cash to meet immediate and short-term needs, the city has hammered its property owners with a whopping “supplemental” tax increase of 23 percent. And it raised the car tax by 19 percent. Adding additional property taxes on people struggling to get by each month only increases the pressure on them and their families. How are folks in Woonsocket supposed to pay these taxes? In many cases, they can’t, so the city will probably not see the full revenue amount it is counting on.

The city also reduced coverage and increased health care insurance costs for both current and retired union employees. With negotiations stalled with some unions, the city simply acted and imposed changes without their consent. Unions will fight these non-negotiated changes in court.

Making matters worse for both municipalities is less overall aid from the state going forward as a result of the new state budget and toughened requirements to fund pensions more adequately and faster. When it comes to retaining their independence from eventual state takeover, the stakes for West Warwick and Woonsocket couldn’t be higher. If a city once as big as Detroit can go broke, any city with systemic financial problems, usually tied to legacy public-employee contract obligations, can stumble into bankruptcy, too.

Here in Rhode Island, not wishing to see any more Central Falls cases if we can help it, we wish both West Warwick and Woonsocket the very best in getting through a very tough situation.


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